The update stops the pins from packing a current when the
charging dock is not attached. A Google spokesperson confirmed with Android Police:

"Recently it has come to our attention that a small
number of G Watch devices have been reported to have developed discolouration
and residue build-up on the terminal pins located on the back. While completely
safe and unlikely to affect charging, LG will be rolling out a maintenance
release over the next few days that will disable the current when the G Watch
is not in the charging dock."

It makes you wonder why the pins had a current running
through them when not charging in the first place.

This isn't the only instance of wearable tech causing skin
irritation, of course. Some Jawbone and Nike FuelBand wearers have
complained about sores or rashes on online forums, and Fitbit famously took its
Force band off the market following a large number of skin irritation
complaints.